Tech and healthcare shares in Australia had the steepest losses after the first 15 minutes of trading, slumping 6.52 per cent and 3.85 per cent respectively.

Every sector was down more than one per cent in early trade, with materials and utilities suffering the least.

Mining giant BHP was down 1.85 per cent to $36.69, Rio Tinto was down 2.25 per cent to $89.43, and Fortescue was down 4.16 per cent to $6.795. The big four banks - ANZ, Commonwealth, NAB and Westpac - were down between 2.38 per cent and 2.99 per cent each.

Gold miners were among the few bright spots as investors looked for a safe haven, with Newcrest, Northern Star, Evolution Mining, St Barbara, Dacian and Saracen rising between 2.82 per cent and 5.85 per cent.

The three major indices on Wall Street had their steepest percentage drops of the year overnight, with the Dow Jones Industrial Average finishing down 2.9 per cent, the S&P 500 down 2.98 per cent and the tech-heavy Nasdaq Composite down 3.47 per cent.

The massive sell-off in the US, which dropped the Dow Jones 1000 points at the closing bell, followed the ASX's worst day of 2019 on Monday.

China let its currency, the yuan, drop to its lowest level against the US dollar in more than a decade, a move that US President Donald Trump railed against as "currency manipulation".

It followed his own tweets last week that threatened tariffs on about $US300 billion ($444 billion) worth of Chinese goods, which would extend tariffs across almost all Chinese imports.

China's central bank said in a statement that Monday's weakness was mostly because of "trade protectionism and new tariffs on China".

Just hours after the President's tweet, the Trump administration officially designated China a "currency manipulator".

The US will now engage with the International Monetary Fund to eliminate unfair competition from Beijing, Treasury secretary Steven Mnuchin said in a statement on Monday.

The US had not put China on the currency blacklist since 1994. The designation could pave the way for more US sanctions against China.

The escalations in the trade war between the world's largest economies are rattling investors already unnerved about a slowing global economy, falling US corporate profits and possibly too-weak inflation.

Losses were steep and worldwide as the sell-off that began on Monday in Asia swept westward through Europe to the Americas.

Investors in search of safety herded into US government bonds, which sent yields plunging lower.

US media is calling the plunge Wall Street's "worst day of the year".

China dropped the price of their currency to an almost a historic low. It’s called “currency manipulation.” Are you listening Federal Reserve? This is a major violation which will greatly weaken China over time!

Based on the historic currency manipulation by China, it is now even more obvious to everyone that Americans are not paying for the Tariffs – they are being paid for compliments of China, and the U.S. is taking in tens of Billions of Dollars! China has always....

A weaker yuan gives Chinese manufacturers a boost by making their products cheaper on worldwide markets for buyers using dollars or other currencies.

That hurts US manufacturers, which have already been hit by the slowing global economy.

It also adds more downward pressure on inflation, which some economists worry may be edging towards too weak.

In the worst-case scenario, falling prices encourage people and companies to hold off on buying things, which starts a vicious cycle of less and less economic activity.

Mr Trump, who has made the US trade war with China a centrepiece of his policy, defended the tariffs on Twitter.

"Based on the historic currency manipulation by China, it is now even more obvious to everyone that Americans are not paying for the tariffs - they are being paid for compliments of China, and the US is taking in tens of billions of dollars!